STIFEL: GPT ($9.62, Buy) - Disposition Volume Exceeds Initial Targets & Ahead Of Schedule

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FULL REPORT

Disposition Volume Exceeds Initial Targets & Ahead Of Schedule

Capital Recycling Plan At GPT. Last summer, Gramercy Property Trust's management put together and presented a capital recycling plan to reshape the company's portfolio post the closing of the merger with CSG. The merger closed in mid-December andGPT has executed on that plan over the last eight months. With the recent sale of four assets, GPT has exceeded its original plan to sell $1.15-$1.23 billion over a 24-month period. We believe, once all of the sale proceeds are redeployed, the company should have a high-quality portfolio with predictable and growing cash flows and a strong balance sheet that should result in a higher multiple.

Triple-Net Sector Has Lagged MTD. The triple-net sector has been lagging MTD -6.5% vs. the RMS -3.8%. The sector has underperformed due to the possibility of the Fed raising rates at the upcoming meeting in September

GPT Has Lagged Triple-Net Sector YTD. YTD, GPT is up 27.8% vs. the triple-net sector +31.5% and RMS +13.9%.

Presented Plan At Investor Day Last September To Reposition Portfolio. Last September, management presented a plan to reposition the combined CSG/GPT portfolio by selling assets in two phases. The first phase was to take place throughout 2016 and was intended to reduce the company's exposure to non-strategic multi-tenant and single tenant suburban office assets by selling $725-$775 million at a 6.2%-6.7% cash cap rate. The second phase was to take place over the longer-term, by year-end 2017 and hoped to sell $420-$450 million of office assets with shorter lease terms at a 7.3%-7.9% cap rate. In total, GPT hoped to sell $1.145-$1.225 billion of assets at an average cap rate of 6.7%-7.2%.

Sells Four More Assets. Yesterday, the company announced that it has sold three more single-tenant office buildings in Princeton, New Jersey, Burlington, Massachusetts, and Bloomington, Minnesota as well as a single-tenant industrial property in Phoenix, Arizona for $206.7 million or a 7.4% forward cash cap rate. The properties had a weighted average lease term of 10.1 years.

Has Exceeded Expectations With Over $1.26 Billion Sold. YTD, GPT has sold $1.26 billion of primarily single and multi-tenant office assets at a weighted average 6.6% cap rate.

More Assets Under Contract & Being Marketed. The company has $158.6 million of assets under contract with an additional $117.8 million being marketed. If those sales close, total dispositions would be $1.5 billion at a 6.8% cap rate, over 12 months ahead of the anticipated schedule.

Use Of Proceeds. Management intends to use the proceeds from asset sales and balance sheet capacity to reach a target asset allocation of 75% industrial and 25% office/specialty.

Acquisition Update. In 2Q, GPT purchased $354.9 million of assets at a 7.3% cap rate with a weighted average lease term of 12.0 years. QTD, an additional $155.2 million have closed at a 6.6% cap rate with a weighted average lease term of 12.1 years. An additional $342.6 million of assets are under contract/LOI at a 6.75% cap rate with a weighted average lease term of 12.2 years. Total acquisitions are $905.5 million at a 7.0% cap rate with a 12.4 year weighted average lease term

U.S. Portfolio As Of 12/31. As of 12/31, U.S. portfolio NOI consisted of 47.0% office, 45.0% industrial, and 8.0% specialty retail.

Pro Forma For The Current Sales. Pro forma U.S. portfolio NOI consists of 60.7% industrial, 34.7% office, and 4.6% specialty retail. Office exposure will continue to come down as sale proceeds are recycled into industrial assets. Management hopes to reduce office exposure to 25.0% by year-end.

Reduced Joint Venture Exposures. With the dissolution of the Duke joint venture and the sale of a large portion of the Goodman joint venture in 2Q, equity investments has been reduced from $580 million to $105 million. Unwinding most of the joint ventures, should provide a cleaner story.

Merger Fully Integrated, Synergies Ahead Of Initial Estimates. The integration with CSG was completed earlier this year. Original synergy estimates were $15 million. Realized synergies are $16-$20 million.

GPTE Gaining Scale, Taking Longer To IPO. Gramercy Europe is a joint venture between GPT, EJF Capital LLC, Fir Tree Partners, and Senator Investment Group LP. The venture owns over 30 assets with almost 10 million sf of that 100% occupied with a weighted average lease term of 8.6 years for a total purchase price of €623.0 million. Over 50.0% of the assets are located in Germany, 25.0% in the Netherlands, and the remainder in France, Poland, and the UK. The pace of capital deployment has been slower than expected.

Wide 2016 Guidance Range To Be Narrowed With 3Q Release, Could Provide 2017 Guidance. With its 2Q release, GPT maintained its 2016 core FFO and AFFO guidance of $0.66-$0.75/share. The guidance midpoint implies 15.6% FFO growth this year. The wide range was maintained as management was waiting to have a better handle on the timing of new acquisitions. Guidance will be addressed with its 3Q release. Management could also release 2017 guidance with its 3Q release. The Street is projecting high-single digit AFFO growth next, some of the highest in the sector.

Maintaining Estimates. We are maintaining our 2016, 2017, and 2018 core FFO estimates of $0.75, $0.79, and $0.84. We are maintaining our 2016 GPT-defined AFFO estimate of $0.70, $0.76, and $0.82. GPT strips out capex below AFFO. If we strip out $24 million of capex in 2016 and $16 million in 2017 to calculate AFFO, our 2016 and 2017 AFFO estimates are $0.64 and $0.73, respectively.

Expected to Address Quarterly Dividend Rate Later This Year. GPT's annual dividend payout is $0.44/share a or 4.6% dividend yield. The dividend will likely be raised later this year.

Balance Sheet. GPT has $2.24 billion of debt, $223 million of cash, and $757 million of undrawn line capacity. Gramercy’s balance sheet has net-debt+preferred to EV at 33.6% vs. the industry average of 32.7%. Net-debt+preferred/EBITDA is 4.7x, one of the lowest in the industry.

Valuation. Our 2Q NAV per share estimate of $8.25 reflects a 6.75% cap rate. Our value range of $9.25-$7.25 reflects cap rates of 6.25%-7.25%. Shares trade at an implied 6.1% cap rate.

Target Price Methodology/Risks

Our $10.50 target price reflects 12.8x our 2018 AFFO estimate of $0.82.

Risks to our target price include a prolonged economic downturn or recession, interest rate movements, and general market risk, including continued weakness in the mortgage-backed securities market and commercial real estate fundamentals.

JANNEY: REITS Mirror, Mirror: 2Q16 Revisions to Apartment Same-Store Estimates

FULL REPORT

We are updating our 2016 and 2017 same-store NOI, revenue, and expense growth estimates for the 8 major apartment REITs following 2Q16 earnings (see Figure 1). Importantly, our estimates continue to be predicated on a US economy (including job growth) and interest rates similar to today going forward. We are also not expecting any significant benefit in 2017 from the “odd year bounce” of the last few years. On a weighted average basis, we now expect 4.8% SS revenue growth and 5.5% SS NOI growth for the peer group in 2016 (-10bps from last quarter), and 4.0% and 4.4% in 2017 (-10bps from last quarter), respectively.

AIMCO (AIV) – Management SS NOI growth guidance is +5.5% to +6.5%, with a YTD actual of +5.5%. We are expecting +4.6% SS revenue growth and +5.7% SS NOI growth in 2016, and +4.0% and +4.4% in 2017. Our 2016 estimates are consistent with our previous estimates (following 1Q16 earnings), while our 2017 NOI estimate improved 30bps.

AvalonBay (AVB) – Management SS NOI growth guidance is +5.0% to 5.75%, with a YTD actual of +6.4%. We are expecting +4.7% SS revenue growth and +5.6% SS NOI growth in 2016, and +3.9% and +4.3% in 2017 based on additional softening in NYC and SF. Our 2016 estimates have been revised downward (consistent with AVB’s own guidance), while our 2017 estimates are marginally lower (-10bps).

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Camden (CPT) – Management SS NOI growth guidance is +4.0% to +4.5%, with a YTD actual of +5.1%. We are expecting +4.2% SS revenue growth and +4.4% SS NOI growth in 2016, and +3.8% and +4.0% in 2017. Our 2016 estimates have been revised slightly upward on lower expenses, while our 2017 estimates remain unchanged.

Equity Residential (EQR) – Management SS NOI growth guidance is +3.75% to 4.25%, with a YTD actual of +5.9%. We are expecting +3.7% SS revenue growth and +4.2% SS NOI growth in 2016, and +3.6% and +3.8% in 2017 based on additional softening in NYC and SF. Our 2016 estimates have been revised downward (consistent with EQR’s own guidance), while our 2017 NOI estimate is now 40bps lower.

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Essex (ESS) – Management SS NOI growth guidance is +7.7% to +8.5%, with a YTD actual of +8.5%. We are expecting +6.9% SS revenue growth and +8.4% SS NOI growth in 2016, and +5.4% and +6.4% in 2017 based on additional softening in NoCal. Our 2016 estimates have been revised downward by 20bps (ESS also lowered its guidance), while our 2017 estimates are roughly flat as we had been expecting some reversion to the mean on the West Coast next year.

Mid-America (MAA) – Management SS NOI growth guidance is +4.75% to +5.25%, with a YTD actual of +6.4% (note: MAA is 1 of 2 to raise their SS NOI guidance this year). We are expecting +4.3% SS revenue growth and +5.0% SS NOI growth in 2016, and +3.7% and +4.0% in 2017 as MAA has more difficult occupancy comparisons going forward. Our 2016 NOI growth has been revised upward by 70bps on both higher revenue and lower expense growth, while our 2017 NOI estimate is now 30bps higher given our expectations of continued strength. Our numbers for 2017 do not include PPS.

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Post (PPS) – Management SS NOI growth guidance is +2.5% to +3.3%, with a YTD actual of +2.9% (note: PPS is the other that raised their SS NOI guidance this year). We are expecting +3.1% SS revenue growth and +2.7% SS NOI growth in 2016, and +3.1% and +2.7% in 2017 for the legacy PPS portfolio (PPS' announced acquisition by MAA should close by YE2016). Our 2016 NOI growth has been revised upward by 40bps on slightly higher revenue and 30bps lower expense growth.

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UDR (UDR) – Management SS NOI growth guidance is +6.5% to +7.0%, with a YTD actual of +6.8%. We are expecting +5.6% SS revenue growth and +6.6% SS NOI growth in 2016, and +4.2% and +4.7% in 2017, making UDR second to only ESS in terms of expected 2017 performance. Our 2016 NOI growth remains in-line with our previous expectations, while our 2017 NOI estimate is now 60bps higher given our expectations of continued strength in UDR’s non-core markets.

Buy-rated AIV, MAA, and EQR remain our favorite names in the apartment REIT space.

FBR: Self-Storage REIT UPDATE

FULL REPORT Storage REITs underperforming year to date. Storage REITs have posted a total return of –8.74% year to date, underperforming the RMS REIT Index by 2,168 bps. Last week, storage REITs were –0.33%, outperforming the RMS REIT Index by 11 bps.

Japan REIT sector - REITs up despite ex-dividend date for 11 REITs

FULL REPORT

Stocks should benefit from BOJ buying, REITs seem also to be in favor

TOPIX rose 2% on 29 August from the previous trading day. The main factor was likely the yen's retreat following the Fed chairwoman's lecture and comments by BOJ Governor Haruhiko Kuroda at the symposium at Jackson Hole, Wyoming, on 26 August. Amid these conditions the TSE REIT index rose 0.5% on 29 August despite it being the ex-dividend date for REITs with August-ending fiscal periods (ie, 11 of the 54 REITs). After nearly doubling its annual ETF buying target to roughly ¥6trn (from ¥3.3trn) at the 29 July Monetary Policy Meeting, the BOJ bought ¥71.9bn in ETFs on both 25 and 26 August, roughly double the daily amount of BOJ ETF buying up to 3 August. Even so, TOPIX continued to fall d-d on 25 and 26 August. On the other hand, the BOJ did not buy REITs on 25 or 26 August, but the TSE REIT index rose each day nonetheless. Judging from these market conditions, our view is that market participants feel safer in REITs than stocks.

NOMURA - Sanki Engineering (1961 JP) (Neutral) Effect of suspension not clear yet

FULL REPORT

Real estate business also warrants attention

In Apr-Jun 2016, operating losses narrowed to ¥0.3bn, from ¥0.6bn the year earlier, although Apr-Jun results make only a small contribution to full-year results owing to seasonal factors. Losses narrowed owing to an increase in revenues in the machinery systems business, offsetting an increase in provisions against construction losses in the facilities construction business, which includes the HVAC systems for buildings business. As announced by the company on 23 June, the government suspended the company from participating in bids and contracts for 30 days, from 8 July to 6 August, in connection with antitrust law violations. We will be paying close attention to the effect of the suspension on earnings in Jul-Sep and beyond. Peers that were similarly suspended in 15/3 saw earnings adversely affected in cases where the companies also refrained from actively taking on work in the private sector. We make no change to our operating profit forecasts, but we lower our target price as we cut our target P/E to 11-12x, from 16-17x previously, to reflect trends in the benchmark P/E and other factors.

 

DNB NEWS & RESEARCH for 8/30th...EUROPE +1% led by FINANCIALS

RESEARCH:
LUNDIN PET:  REIT BUY,  UP PT from SEK155(162) Positive Johan Sverdrup news
DETNOR:      REIT BUY,  UP PT from NOK125(128) better production level,lower cap
STATOIL:     REIT BUY,  PT NOK160support update on development costs in Norway
AURORA LPG:  REIT HOLD,CUT PT NOK22.50(11)

DNB NEWS & RESEARCH for 8/29..UK CLOSED BANK HOLIDAY EUROPE VOLS -60%

SKANSKA:     U/G from HOLD(BUY), UP PT from SEK185(220) improved USA outlook
LUNDIN PET:  REIT BUY,  UP PT from SEK155(162) Positive Johan Sverdrup news
DETNOR:      REIT BUY,  UP PT from NOK125(128) better production level,lower cap
STATOIL:     REIT BUY,  PT NOK160support update on development costs in Norway
AURORA LPG:  REIT HOLD,CUT PT NOK22.50(11)
AF GRUPPEN:  REIT SELL, UP PT from SEK90(100) concern remains premium valuation

NOMURA - Maeda (1824 JP) (Buy) Focus on sales growth, concessions

FULL REPORT

Pulling away from rivals by ending its dependence on contracting work

Maeda performed well in 17/3 Q1, generating a gross margin of 9.9% on building construction projects and overall operating profit growth of 26% y-y. We raise our profit forecasts, having lifted our outlook for the gross margin on building construction projects. While some investors may be concerned that the gross margin on building construction projects is high in historical terms and offers only limited scope for improvement from 18/3 onwards, we note that the order book has been rising and that sales growth from 18/3 onwards is likely to lend further impetus to profit growth. Maeda has also established a subsidiary to operate a toll road concession in Aichi Prefecture, and it will be interesting to see how it contributes to earnings. We have raised our target price to reflect upward revisions to our profit forecasts and a rise in the benchmark P/E.

STIFEL: Office/Industrial REITs - Office & Industrial REIT Metrics Update 8/26/16 - With Two Upcoming Conference Calls

FULL REPORT Office & Industrial REIT Metrics Update 8/26/16 - With Two Upcoming Conference Calls

We will hold our semi-annual Funds Flow Update conference call on 31 August 2016 at 11 AM ET. The invitation is attached. There are a number of moving pieces including positive Japanese retail funds flows and the strength of ETF funds flows relative to weakness in actively managed funds flows. Also on the schedule is our semi-annual NAV Creation/Destruction Update conference call, which is scheduled for 7 September 2016 at 11AM ET. Again, this invitation is attached. Pricing as of close 8/26/16

Despite excellent YTD 2016 performance, we continue to like Industrial REITs and have Buy ratings on six of the eight we cover. We expect industrial fundamentals to continue to modestly surprise to the upside and look attractive relative to other property sectors.   Despite recent positive performance following 2Q16 earnings calls, we continue to favor Gateway City office REITs including Vornado (VNO, Buy, $102.24), SL Green (SLG, Buy, $115.52), Empire State Realty Trust (ESRT, Buy, $20.98), and Kilroy Realty (KRC, Buy, $70.26) due to a combination of fundamentals, real value-add platforms and attractive valuations relative to suburban or low barrier office REITs, which are often (but not always) encumbered by weak fundamentals and a pension fund advisor type, generic platform. Along with the two invitations to our aforementioned conference calls, the most recently updated Office and Industrial REIT valuation metrics are attached as Exhibits.   Below, we have our 2Q16 Earnings wires for each company under coverage (in chronological order from most recent reporter to first reporter):   Lexington Realty Trust (LXP, Hold, $10.79) - Since the February 2016 bottom, LXP has performed nicely as a yield play rose amongst the thorns. 400 Meter Sprint. Maneuvering the Curves Easily. Maintain Hold.   Vornado - VNO continues to be a complicated story but there have been additional steps toward increased transparency 26.2 Mile Marathon or 10K Open Water Swim? Glory for Those Who Finish. Maintain Buy. We also adjusted our Price Target shortly after earnings seasons came to a close: Post Earnings Season Price Target Adjustment Up to $115/sh. Maintain Buy.   DCT Industrial (DCT, Buy, $48.72) - Continued success for our friends out in Denver who continue to be the bell cow of pure play, domestic industrial REITs. Continuing To Make it Look Easy; Adjusting Estimates; Increasing NAV; Buy and Rhythmic Gymnastics and Trampoline. Target Price up to $52/sh. Maintain Buy.   Mack-Cali (CLI, Buy, $28.07) - As CLI moves into their new Jersey City, NJ offices, they continue to execute on their two-year plan. High Jump. Scissors, Eastern Cut-off, Western Roll, Straddle or Fosbury Flop. Target Price Up to $30; Maintain Buy. Just last week Mack-Cali hosted a Gold Coast Property Tour: Triple Jump. Hop, Skip, Jump Through Apartment and Office Gold Coast Portfolio. Maintain Buy.   Piedmont Office Realty Trust (PDM, Sell, $21.45) - PDM continues to exit non-core markets slowly, but surely, and it seems the Street has taken kindly to this strategy. Race Walking. 50 Kilometer Walk. Maintain Sell.   Rexford Industrial Realty (REXR, Buy, $22.06) - As the only industrial REIT completely focused on the SoCal market, Rexford continues to succeed with their single-market focus. Sailing - Keeping the Rexford Yacht North of the Equator. Maintain Buy. TP Up to $24.50. Rexford also recently announced a preferred equity offering: Rugby Returns to the Olympics. Preferred Shares Returning to the REIT Capital Stack. Buy.   Douglas Emmett (DEI, Sell, $36.98) - Staying with the southern California theme, we think the West L.A. and SoCal office markets are solid, but we still have questions regarding DEI. Beach Volleyball. What Else? Maintain Sell.   Highwoods Properties (HIW, Hold, $52.93) - With one of the top management teams in REITland, HIW has been one of the top-performing office REITs of 2016 (up 24.7% vs. 14.0% for the RMS YTD in 2016). Weightlifting; Heavy Lifting Looking Easy; Maintain Hold   Armada-Hoffler Properties (AHH, Buy, $13.92) - The strategy is expanding, the portfolio is transitioning and the crew from Virginia Beach continue to be the Teflon dons in an environment that has gravitated towards yield plays. Cycling in the Velodrome. Maintain Buy. TP Increased to $15.50/sh.   First Industrial Realty Trust (FR, Buy, $28.58) - With new CEO Peter E. Baccile coming in, Mr. Duncan rides off into the sunset on a high note. Cruising Through the Preliminary Heats. Increasing TP to $32/sh. Buy.   Duke Realty Trust (DRE, Buy, $27.91) - DRE has risen up the ranks to become one of the top-performing industrial REITs YTD at 36.0% vs. 14.0% for the RMS. Decathlon Continues. More Delevering. Target Price up to $30/Sh. Maintain Buy.   Equity Commonwealth (EQC, Hold, $30.63) - Sooner rather than later EQC will have some serious decisions to make regarding the portfolio they want to own in the long term. Javelin Throw? Javelin Catch? Hold.   Corporate Office Properties Trust (OFC, Hold, $28.83) - OFC has recovered some of their early 2016 momentum in the dog days of summer. Multiple Games at the Olympic Games. Maintain Hold.   First Potomac Realty Trust (FPO, Sell, $10.08) - FPO still has many obstacles to hurdle, but the re-shaping of the portfolio and strategy has certainly begun. Gymnastics. Perfect 10? Or Really A 9? Maintain Sell.   Terreno Realty Trust (TRNO, Buy, $26.87) - Although TRNO has been the industrial laggard under coverage, we still believe no new supply and declining inventory is a good thing. Open Water Swim. Finally Swimming with the Cost of Capital Current. Maintain Buy.   Washington Real Estate Trust (WRE, Hold, $32.65) - We recently hosted the WRE management team to some investor meetings, here are our take-aways: Maryland Athletes Win Twenty Olympic Medals While WRE Happy to Exit Maryland Office Market. NDR Recap. Hold. The strategy is being endorsed by investors and WRE is an excellent Washington, D.C. proxy, in our view. Sweltering Summer. Coolly Rowing on the Potomac. Eight Man Boat. Maintain Hold.   Empire State Realty Trust - PSA: Please stop asking about the observatory. Take a look at some of the rental rates. New Olympic Sport - ESB Stair Climb. Lease Economics Rival Stair Slope. TP Increase to $23/sh. Buy.   Parkway Properties (PKY, Hold, $17.47) - Until additional information is provided in the coming weeks on the merger-spin with Cousins Properties (CUZ, Hold, $10.73), there shouldn't be many catalysts. PKY: Synchronized Swimming. Teammates Include Cousins Properties and Oil Market. Hold. CUZ: Synchronized Diving. Synchronized to Parkway and Oil Prices. Maintain Hold. A look at our initial valuation on the merger spin-off from PKY's view: Smart and Expensive? Expensive, but Smart? Isolate Houston Purgatory. Hold. Boston Properties (BXP, Buy, $140.49) - BXP sticks to what they are great at: 1) Strong development pipeline and 2) great submarket recognition. Michael Phelps & the U.S. Swim Team. 2Q16 Earnings Analysis. Maintain Buy.   Franklin Street Properties (FSP, Hold, $12.77) - FSP is very much a dividend-yield name with low cost debt helping maintain FFO. Archery. Gradual Leveraging Up Keeps Valuation Metrics Static. Hold. FSP also recently announced an equity offering in conjunction with their acquisition of Pershing Park Plaza in Atlanta, GA as well as to fund some of the redevelopment at 801 Marquette Avenue in Minneapolis, MN. Long Jumping to Lower Leverage. Smart Equity Raise. Hold.   Kilroy Realty Trust - Even with "tech bubble" headline risk, KRC is doing too good a job to be on the sidelines. 10,000 Meter Run with Usain Bolt Leasing Expectations. Maintain Buy.   Liberty Property Trust (LPT, Hold, $40.52) - A dividend cut at a time when the incremental generalist investor is snooping around for yield plays has slowed the 2016 run-up of LPT. IOC Intervenes. Dividend Cut. More Involvement Needed. Maintain Hold.   SL Green Realty Corp. - Although SLG has underperformed the RMS (3.8% vs. 14.0%, respectively), it looks to have righted the ship and is poised for a strong finish to 2016 . Weightlifting. Positive Re-leasing Spreads vs. Heavy Lifting Related to Market Perceptions. Target Price Up to $121/sh. Buy. We also increased our price target following their recent JV partnership with Prudential for Eleven Madison: Hammer Throw. Full Block of Buildings Disappeared. As Did 40-49% of Eleven Madison. Price Target Up to $125/sh. Buy.   Brandywine Realty Trust (BDN, Hold, $16.32) - Philadelphia-centric portfolio with a significant amount of dispositions in the rear-view mirror. Mile Swim. Solid Core Portfolio. Development Projects Waiting for Anchors. Neutral Leasing Metrics -- New Analysis. Hold.   EastGroup Properties (EGP, Hold, $72.87) - Soft leasing economics rear their not so ugly heads. Steeplechase. Gather Speed; Then the Hurdles. Weak Lease Economics -- New Analysis. Downgrade to Hold.   Prologis (PLD, Buy, $53.31) - Although there are many moving pieces here, and it may be confusing to the general investor, NAV creation has continued. Decathlon. Excelling in Numerous Events. Value Creation Continues. Lease Economics Creating Value (New Analysis). Buy. Links to our most recent office and industrial REIT sector wires follow:   Please see our Replacement Cost Update here: Bonkers!! Replacement Cost - Office & Industrial - Conference Call - Thursday, July 7, 11AM (Slides Attached Below)   Our previous NAV creation/destruction call: Conf. Call 3/1/16 - NAV Creation or Destruction and Office Lease CAPEX vs MTM Analysis SLIDES ATTACHED. Dial-in Below.   Our previous Funds Flows update call: Funds Flows Update. Japanese Flows Strong. Generalist Investors the Key. SLIDES ATTACHED.   Our most recently updated, deep-dive Washington D.C. MSA wire: Conference Call -- 11 AM. 8 April 2016. Washington D.C. Office and the Cap Ex Conundrum. SLIDES ATTACHED 2Q16 Office Fundamentals - Houston Free Fall. San Francisco and Boston Solid, Los Angeles Hype Not in Numbers. 2Q16 Office Fundamentals Update.   2Q16 Industrial Fundamentals - National Vacancy Down 30 bps to 5.8% Q/Q. Elevated Starts Where Economics Work. 2Q16 Industrial Fundamentals Still Strong.   On June 18, 2015, we published our annual office REIT portfolio review - SLIDES ATTACHED - Amenity & Transportation - The Best Positioned Office REIT Portfolios - Conference Call 11 AM ET 6/19/15

STIFEL: WRE ($32.06, Hold) - Maryland Athletes Win Twenty Olympic Medals While WRE Happy to Exit Maryland Office Market. NDR Recap. Hold

FULL REPORT FULL MODEL Maryland Athletes Win Twenty Olympic Medals While WRE Happy to Exit Maryland Office Market. NDR Recap. Hold.

As the summer draws to a close, we accompanied Washington REIT on an NDR; reviewing their core portfolio and -- now that they have an attractive cost of capital -- growth opportunities. We note that while Maryland athletes won 20 Olympic medals, the WRE management noted that there is zero correlation between Maryland athletic prowess and Suburban MD office market dynamics. Hence, exiting their suburban MD office assets for $240mm and a very high $200/SF was Olympic gold for WRE.

Key take-aways included: 1) proforma the suburban office asset sales the portfolio NOI will be comprised of 46% office, 30% apartment and 24% retail, 2) deleveraging is occurring with net debt/EBITDA falling from 6.6x at 4Q15 to an expected 6.1x-6.3x by YE16, 3) strong job growth in the DC MSA is sustaining demand for apartments and retail sales, 4) the affordability gap between Class A and Class B apartments appears to be increasing, improving WRE's ability to raise rents in its Class B apartments, despite all the recent new supply delivered in the DC MSA, and 5) the appeal of METRO accessible office properties is apparent as net office absorption in Northern Virginia between 1/1/15 and 6/30/16 in assets within 1/2 mile of METRO stations is positive 1.8mm SF. For those assets further away, net absorption was negative 1.3mm SF for the same period. Sixteen of WRE's proforma eighteen office properties are within half a mile of a METRO.   One of the few REITs we cover that has an internal research team and focuses on only one market, we are always interested in the WRE perspective on the multiple asset classes and the ability to create value primarily through acquisition and redevelopment in the Washington, D.C. MSA.   Based on recent transactions and forward expectations, it appears that WRE is much more interested in spending capital on inside the Beltway Virginia-centric apartment development and redevelopment than 'office capex hogs'. Per our 2Q16 Office Fundamentals wire here: Houston Free Fall. San Francisco and Boston Solid, Los Angeles Hype Not in Numbers. 2Q16 Office Fundamentals Update. we are not at all surprised. Although there are some rays of sunshine in the greater Washington, D.C. office market, landlords are still expected to provide turnkey office space.   Additionally, please see our Washington, D.C. update wire (here). The greater D.C. office market is recognized as one of the most expensive markets in the country for re-leasing office space.   We estimate WRE currently trades at 5.9%/4.7%/4.2% implied cap rates for NOI/cash flow/CF less G&A. This equates to (9.0%)/3.0% discount/premium to our NAV estimate of $35/$31/sh using our just reduced NAV cap rate range of 5.5%-6.0%. We adjusted our NAV cap rate range as a result of the cumulative efforts to reposition the office portfolio while reducing its overall percentage of NOI. Once the suburban office asset sales are completed in 3Q16, WRE's NOI will be composed of 46% office, 30% apartments and 24% retail. We believe this is an improvement from the 4Q15 composition of 55% office, 20% apartments and 25% retail.   In addition to adjusting our NAV cap rate range, we are also adjusting our NAV static cap rate analysis to reflect the portfolio's improving quality.

• This adjustment creates a one-time pop to NAV. Where the value goes hereafter will once again depend upon management's ability to create value in a still challenging Washington, D.C. environment. WRE's improved cost of capital, should help in this respect.

• It appears as if all REITs (all sectors) that are generating reasonable (5%+) FFO/FAD growth, can grow the dividend and own institutional quality assets are trading sub 5.3%. As WRE clearly owns institutional quality assets, share price appreciation appears likely if the portfolio starts generating earnings and dividend growth.

• We think the post suburban office portfolio sale TEV for office space of $455/SF is fair relative to our recently updated $592/$433/SF estimates for gross/adjusted replacement cost.

• Other positive aspects include 1) improved balance sheet, 2) improved portfolio, 3) while the Washington, D.C. economic recovery lagged the U.S. 2011-2015, it is now exceeding the U.S., 4) Washington, D.C. leads the nation in millennial as a percentage of the population, and 5) WRE has internal redevelopment opportunities for both office and apartment assets.

• Negatives include 1) there is not a shortage of talented developers in the Washington, D.C. MSA, 2) land is available near a large number of METRO stops, 3) significant apartment supply, 4) surprising continued office development in select markets.

• We are adjusting our 2016 FFO/FAD/sh estimates to $1.77/$1.28 from $1.77/$1.32 and our 2017 FFO/FAD/sh estimates to $1.81/$1.30 from $1.80/$1.29. This equates to normalized FFO/FAD 2015-2017 growth of 2.9%/2.8%.